Investing in Advanced Manufacturing Worth the Cost, Experts Say

In 2010, the Employers Association of New Jersey (EANJ) convened ten groups of employers in five regions of the state. 458 private sector employers that employ 41,200 employees in New Jersey attended, about a third of the EANJ’s membership. The meetings resulted in a real time cross section of the state’s employers.

Among the top concerns expressed by the employers were increased health care costs (78%); maintaining the productivity of the existing workforce (62%); the mismatch of skills of current and future workers (59%); and finding the money to make capital investments (42%).

According to John Sarno, present of EANJ, and the person who conducted the meetings, not much has changed.

“Without skilled workers, it doesn’t make much sense investing in productivity improvements, like better technology,” he says.

Economists have documented the correlation between productivity and rising living standards. Improvements in production result in higher wages over time.

But Sarno has documented a business model shared by many employers, particularly small manufacturers who rely on lower wage, lower skilled workers and therefore have little need to invest in new skills or new machinery.

“They stay in business primarily as niche players within a national supply chain, mostly doing defense work,” he says.

About 1,400 small manufacturers in the state will benefit from a U.S. defense contract, he says.

And Congress has approved $886 billion in defense spending for fiscal year 2019.

“Most of these military contracts guarantee the status quo of lower skilled work and minimal capital investment, but they do provide, more or less directly, about 49,000 paychecks,” Sarno adds.

Sarno has visited dozens of these firms.

“They are clean, decent places to work. Workers, mostly older and tenured, are loyal and owners care about their welfare. In many, it is obvious that workers and owners enjoy each other’s' company on the shop floor. In some, owners believe that they are morally obliged to help workers and their families in need,” he says.

Not much has changed on the shop floor for decades. Long tenured workers operate decades-old machinery producing the same product line.

“The skills necessary to do these jobs haven’t changed in a generation’’ says Sarno.

But for other employers who do not have the stability of government contracts, attracting and retaining skilled workers can be an obstacle to growth.

According to Deloitte Consulting, over the next decade there will be approximately 3.5 million manufacturing jobs needed in the United States. By 2025, 2 million are expected to go unfilled. In New Jersey alone, there may be approximately 360,000 manufacturing jobs that need to be filled.

In February, the New Jersey Manufacturing Extension Program (NJMEP) received $275,000 from the New Jersey Department of Labor and Workforce Development to manage an Advanced Manufacturing Talent Network.

The purpose of the network is to promote a highly-skilled workforce with education and occupational training through the creation of apprenticeships and other career pathways into what is called “advanced” manufacturing.

According to the Labor Department, approximately two thirds of all manufacturing industry employment in the state is classified as advanced, where wages are much higher for skilled workers.

Average wages paid in many advanced manufacturing industries are well above the statewide private sector average of $62,420 in 2016, according to the department.

The category includes food, chemical, computer and electrical manufacturing.

The advanced manufacturing industry sector contributed nearly $30.9 billion to the state Gross Domestic Product in 2015, or about 6.1 percent of all output.

From 1990 – 2016, manufacturing lost 297,300 jobs in New Jersey, a 3 percent annual decline.

“These were the years of the Great Recession and the dismal no-growth aftermath. If it weren’t for government spending, it would have been much worse,” says Sarno.

But from 2015 to 2016, the state’s manufacturing sector benefited from a growing economy, gaining 2,900 jobs.

And with a push from NJMEP, a Bi-Partisan Manufacturing Caucus has been created in the state legislature to bring renewed attention to the needs of the sector.

“But unless they can repeal the boom-and-bust cycle, creating another small business entitlement program doesn’t make much sense. The small, privately-held shop already benefits from government spending and a favorable tax code,” says Sarno.

“But investing in a skilled workforce for what could be a growing advanced manufacturing sector is definitely worth the expense,” he adds.

EANJ is a nonprofit trade association dedicated to improving employer-employee relations and facilitating the exchange of information among employers. It does not render legal services,
offer legal opinion or engage in the practice of law. Benefit plans are governed by plan documents. EANJ membership is not a guaranty of participation in any plan.